5 Inventory Planning Best Practices

In a session we co-presented at the recent National Conference on Operations & Fulfillment in Las Vegas, we led a panel that delivered the following top five inventory planning best practices:

1. Build partnerships with suppliers. View your suppliers as subordinates and they’ll simply do your bidding. Work with them as partners and you’ll succeed together. You'll achieve more sales — with higher fulfillment, fewer overstocks and better inventory turnover — if you have a partner relationship with suppliers. Communicate with suppliers comprehensively and often. If they can anticipate your needs, they have a better chance of having raw materials and manufacturing capacity available when you need it. Establish these relationships so suppliers can tell you any bad news before delays in production or delivery impact your business.
2. Capture shadow or lost demand. Incomplete or inaccurate demand data leads to faulty demand planning and inaccurate purchasing decisions. What's more, it negatively impacts staff efficiency. Without accurate demand data, merchants can make incorrect decisions about strong vs. weak sellers. In addition, not capturing lost demand understates response rates and average order size, potentially impacting future list selection.
3. Measure both order and item fulfillment. Order fulfillment is the best measure of customer satisfaction. It gauges the percentage of customers that are shipped their orders complete at the time of order. The best measure of inventory buying performance is item fulfillment. This measures the percentage of individual items that are shipped to customers when ordered. Understand the relationship between the two so individual inventory buyers can comprehend their impact on total customer experience.
4. Forecast Internet demand. With Web sales growing to more than 50 percent of total sales for many catalogers, there's growing concern about how best to forecast. First, understand the true source of the demand. On average, only 10 percent to 20 percent of Internet demand is truly “incremental” and not driven by other media. There are two main approaches to online forecasting: time-phased modeling and traditional offer-based forecasting with demand curves. Both are valid. Ensure that you understand the marketing dynamics of your business to apply the appropriate mix of the two forecasting models. For details, see Ray Goodman’s March 2009 Catalog Success article, “Grab the Bull by Both Horns.”
5. Build processes for speed. Every day yields new information to consider. Success is directly related to the speed of receiving, processing and acting on new information. Whether it’s reforecasting demand, placing new purchase orders or adjusting existing ones, build systems and processes that maximize speed.

George Mollo is president of GJM Associates Inc., a merchandising operations consulting firm for direct marketers. He can be reached at gjm1@gjmassoc.com. Todd Lindeman is director of client services at Direct Tech, a provider of marketing and merchandising systems for multichannel marketers. He can be reached at tlindeman@direct-tech.com.